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While the dollar weakened a bit today, the U.S. Dollar Index showed the buck’s value hovering near its highest value of the year last week, compared to six other major currencies.
The dollar closed the week at 92.91, just below its 30 March high of 93.30 this year and well above the low of 89.44 on 5 January.
A value of 100 would mean that the dollar is worth as much as the rest of the currencies in the index, which includes the euro as well as the currencies of Canada, Great Britain, Japan, Sweden, and Switzerland.
With fears that the Delta variant threatens a global economic recovery, investors seeking security are betting dollar will move higher as other currencies decline. However, as we have forecast, with the new Delta variant measures being imposed in many cities and states in the U.S., the Biden Bounce will begin to flatten out.
The U.S. dollar lost value earlier this year as expectations grew around prospects for a broad global recovery, which would have lured investors away from the dollar’s safety and to assets promising greater returns. (See “Speculators Bet: Dollar Going Down,” Trends Journal, 26 January, 2021.)
No more.
On 2 July, speculators held 13,300 positions “shorting” the dollar – betting it would lose still more value, the WSJ reported. By 16 July, the number had shrunk to 2,900, the WSJ noted.
TREND FORECAST: The dollar has strengthened because most of the world’s other economies and currencies are even weaker by comparison. The dollar is traditionally the safest place for wealth to “hang out” until opportunities come along that promise better returns.
The word on The Street is that as Europe’s economic recovery gathers momentum in the next few months, the dollar’s value is likely to slide again. We disagree. Considering the new COVID War 2.0 mandates being imposed throughout Europe, unless they are dramatically reversed, the Eurozone economy will decline.
And today, the International Monetary Fund warned, as we have been, that inflation is not transitory. IMF Chief Economist Gita Gopinath said that “more persistent supply disruptions and sharply rising housing prices are some of the factors that could lead to persistently high inflation.” She forecasts that “inflation is expected to remain elevated into 2022 in some emerging market and developing economies, related in part to continued food price pressures and currency depreciations.”
Thus, the higher inflation rises, theoretically, so too will interest rates. And as we have forecast the higher interest rates rise, the deeper the equity, real estate and general economies will fall since it will cut off the unprecedented cheap money stream that has artificially pumped up economies and equities.
Double Down
And now, with governments imposing new rounds of mandates to fight COVID War 2.0, there will be increasing pressure to keep interest rates low while pumping in more cheap money to push up failing economies.
This will in turn escalate inflation, and the value of currencies will decline. Therefore, despite higher price increases and expectations that central banks will start to curb their low interest rates and bond buying schemes, many will choose to let inflation rise rather than let their economies fall into recession and depression.
Overall, this will be bullish for gold, silver and a number of cryptocurrencies, especially bitcoin.